Midstream News

WoodMac: delays to Panama Canal expansion pose global trade risks

Wood Mackenzie expects the recent cost overrun disputes around the Panama Canal expansion to be resolved with limited disruption due to the significance of the Canal to global trade. Significant disruptions will crimp profitability for US LNG producers, create a tighter LNG shipping market and affect the US Gulf Coast petrochemical industry.

"Given the enormous strategic and financial importance of the Canal to Panama, we expect the gridlock to be resolved," says Andrew Buckland, Senior LNG Shipping Analyst at Wood Mackenzie. "If the delays last 6 –12 months, it will have limited impact, as trade will carry on much as it does now, but further delays threaten the investments of a significant number of groups that are set to benefit from expanded capacity on the waterway."

The expansion will benefit users depending on the position of their ports in relation to the canal, particularly the US, whose cargo accounts for 65% of total cargo moved through the canal.

LNG industry

• LNG is not currently traded through the Panama Canal as most LNG vessels are too wide to fit through the locks. The expansion project will allow all but the very largest LNG ships to use the Panama Canal.
• A delay until early 2016 will impact the first US Gulf LNG exports from Sabine Pass. This will impose a higher shipping cost to target markets in Asia as ships will need to take a longer route via the Cape of Good Hope. However, the differential between US and Asian gas prices will still make the trade profitable and initial volumes will be small as the project ramps up.
• The LNG shipping market will be tighter (with higher spot-market freight rates) than it would otherwise have been as volumes from Trinidad and the USA will have to travel the long way round to Asia. The LNG shipping market is expected to weaken between now and 2016 as new ships are delivered to the market before new capacity comes on-stream.

Oil industry

• We do not expect there to be any impact on Venezuelan crude exports to China: Trade will continue to be more cost effective in Very Large Container Carriers (VLCCs) that are too big to fit through the expanded canal.
• Supports higher product prices in Chile and exposes US exports to higher shipping costs.
• Supports product exports via alternate routes.

Excelerate files FERC application for Lavaca Bay LNG project

Excelerate Energy has filed its formal application with the Federal Energy Regulatory Commission (FERC) requesting authorization to construct, own, and operate the first floating liquefied natural gas (FLNG) export facility in the US. Pending approval, the facility is expected to be operational in 4Q18. Excelerate Energy has been granted permission to export to free-trade agreement (FTA) nations by the US DOE and has filed for non-FTA approval in October 2012. Excelerate is fourth in order on the list of applicants the DOE is currently processing.

Sited along the coast south of Point Comfort, Texas, the facility will comprise of a permanently moored floating liquefaction storage and offloading (FLSO) unit with 4.4 million tonnes per annum (MTPA) of production capacity and 250,000 cubic meters (m³) of LNG storage, and a fully integrated, on-shore gas processing plant. The facility will interconnect to the region's existing pipeline system to obtain natural gas and liquefy it onboard the unit. The project will be designed and permitted with the potential for expansion and the addition of a second FLSO over time for a total production capacity of up to 10 MTPA.

Texas LNG submits DOT application for LNG exports

Houston-based Texas LNG LLC has filed an application to the United States DOE seeking authorization to export up to 2 MTA (million tonnes per annum) of LNG to FTA and non-FTA markets. This key achievement follows Texas LNG's execution of an exclusive lease option agreement in December 2013 with the Port of Brownsville in South Texas, USA to secure a prime location to develop its innovative export project. The company expects to receive FTA export approval by the end of Q1 or beginning of Q2 2014, and non-FTA later in the year.

Texas LNG will employ a toll processing business model whereby the LNG customer will pay Texas LNG a fee for converting natural gas into LNG. Texas LNG's 51 acre site is located along the Port of Brownsville's deepwater channel. The export facility concept involves a liquefaction barge to be fabricated offsite. At the Texas LNG site, the barge will be permanently "grounded" so that it will no longer be a floating vessel.

Texas LNG anticipates that LNG export could commence in early 2018. The company plans to make a request to the FERC to begin the pre-filing process by the end of 2014. Commencement of construction is subject to regulatory approvals and a final investment decision (FID) contingent upon Texas LNG obtaining satisfactory construction contracts and long-term customer contracts sufficient to underpin financing of the project.

Texas LNG LLC is engaged in LNG related businesses with presence in Asia-Pacific (Australia and China) and Middle East (Dubai, UAE).

Tall Oak Midstream Secures $100 Million Equity Commitment

Oklahoma City, OK-based Tall Oak Midstream LLC received an initial equity commitment of up to $100 million from private equity firm EnCap Flatrock Midstream and management. Tall Oak will pursue midstream opportunities in emerging resource plays across North America with an initial emphasis on the Mid-Continent region of the United States. Tall Oak Midstream's management team includes president and CEO Ryan D. Lewellyn; chief commercial officer Carlos P. Evans; CFO Max J. Myers; and COO Lindel R. Larison. Prior to Tall Oak's formation in early 2014, Lewellyn served as managing director of DCP Midstream's Mid-Continent business unit. Evans most recently served as manager of gas sales for Chesapeake Energy. Myers was previously treasurer of OGE Energy Corp. Larison was most recently with Chesapeake Energy, where he served as the manager of construction and engineering. Paul Hastings LLP served as legal counsel to Tall Oak Midstream. Thompson & Knight LLP represented EnCap Flatrock Midstream.

Harvey Gulf breaks ground with LNG facility

New Orleans-based Harvey Gulf International Marine (HGIM) announced today the ground breaking of construction on its $25 million Phase 1, Slip B, LNG fueling facility at their Port Fourchon, LA terminal. When operational later this year, HGIM's LNG facility will be the first of its kind in the United States. This technologically-advanced, environmentally-safe, clean energy facility will be a vital addition to the growing national LNG supply infrastructure, supporting critical operations of the oil and gas industry's offshore fleet as well as over-the-road vehicles operating on clean LNG. "HGIM is investing $350 million in the construction of a LNG-operated fleet," said CEO Shane Guidry. The LNG facility will consist of two sites each having 270,000 gallons of LNG storage capacity. The LNG tanks will be of stainless steel, Type 'C' construction. Each facility will be able to transfer 500 gallons of LNG per minute. Harvey Gulf's LNG facility will generate 70 new full-time jobs and another 120 jobs to handle its Port Fourchon operations and fleet of LNG vessels.

Five Point Capital invests $75M in Redwood Midstream

Five Point Capital Partners LLC, a private equity firm focused on midstream energy infrastructure and energy sector investments, has provided a $75 million equity commitment to Redwood Midstream Partners LLC. Houston-based Redwood will focus on the development, expansion and optimization of midstream energy infrastructure for small to mid-sized producers in emerging shale producing regions. Redwood is led by Marty Patterson, a midstream energy veteran with more than 30 years of industry experience. Prior to founding Redwood, Patterson was a member of the founding management team at American Midstream Partners.